Unfair Prejudice and Just and Equitable Winding Up Flashcards
What is the most common remedy granted by the court in an unfair prejudice claim under s994 CA 2006?
A. That the company be dissolved
B. That the directors be fined
C. That the petitioner be paid compensation
D. That the petitioner’s shares be bought out
D. That the petitioner’s shares be bought out
Explanation: The court often orders that the majority or company purchase the minority shareholder’s shares, especially where unfair prejudice is found.
Which of the following would most likely be considered unfair prejudice under s994 CA 2006?
A. A temporary disagreement over dividend levels
B. A serious and repeated breach of director duties leading to loss
C. A change in business direction approved by majority
D. A minor error in the filing of accounts
B. A serious and repeated breach of director duties leading to loss
Explanation: Unfair prejudice includes conduct like serious mismanagement or breach of duty that harms minority shareholders’ interests.
Under s994 CA 2006, who brings the claim and in what capacity?
A. A former member, acting on behalf of the company
B. A member, acting personally
C. A director, acting for the board
D. A creditor, acting in the company’s interests
B. A member, acting personally
Explanation: Unfair prejudice claims are personal actions brought by current members (shareholders), not by or on behalf of the company.
X is a minority shareholder in a quasi-partnership company. He is excluded from management despite an expectation he would be involved. What claim is X most likely to bring?
A. A derivative claim under s260
B. An unfair prejudice claim under s994
C. A claim for damages under contract
D. A petition under s122 IA 1986
B. An unfair prejudice claim under s994
Explanation: In quasi-partnerships, exclusion from management can breach legitimate expectations and amount to unfair prejudice.
Which of the following is not required to prove a claim under s994 CA 2006?
A. That there was bad faith
B. That the conduct was unfair
C. That the conduct was prejudicial
D. That the claimant is a current member
A. That there was bad faith
Explanation: Bad faith is not required. Even well-intentioned conduct can be unfair and prejudicial to a shareholder’s interests.
A company pays excessive salaries to directors who are also majority shareholders, while paying no dividends. A minority shareholder complains. What claim might succeed?
A. Unfair prejudice under s994
B. Action in tort
C. Derivative claim
D. Contractual claim under shareholders’ agreement
A. Unfair prejudice under s994
Explanation: Excessive remuneration and non-payment of dividends are common grounds for unfair prejudice.
What is the effect of a successful petition under s122(1)(g) IA 1986?
A. The directors are removed
B. The company is struck off
C. The court orders a restructuring of share capital
D. The company is wound up
D. The company is wound up
Explanation: The court may order the company to be liquidated if it is just and equitable to do so.
Which of the following will NOT typically support a just and equitable winding up petition?
A. Deadlock in management
B. Breakdown of mutual trust
C. Disagreement on marketing strategy
D. Loss of the company’s founding purpose
C. Disagreement on marketing strategy
Explanation: Minor disagreements or policy disputes usually don’t justify winding up. The remedy is reserved for more serious breakdowns.
P, a shareholder, is forced out of the company and made to sell shares. The court finds the conduct was unfairly prejudicial. What valuation principle will likely apply?
A. Apply a minority discount
B. Value shares at incorporation date
C. Apply a market-based formula
D. Value without minority discount
D. Value without minority discount
Explanation: Courts usually do not apply a minority discount in unfair prejudice cases where the petitioner is being forced out unfairly.
Which of the following best describes a key difference between s260 and s994 claims?
A. s994 is a personal claim; s260 is a derivative claim brought on behalf of the company
B. Both are personal claims for damages
C. s994 is brought by a director; s260 by a member
D. s994 is brought on behalf of the company; s260 is personal
A. s994 is a personal claim; s260 is a derivative claim brought on behalf of the company
Explanation: s994 gives shareholders a personal remedy for unfair prejudice, whereas s260 is brought in the company’s name for breach of director duty.
